UK tax system is “not fit for purpose”

Research suggests that talking about tax is not as “politically toxic” with voters as it is perceived to be, and Labour urgently needs to consider radical tax reforms, according to a new Fabian Society report. Tax for our Times (which you can read here) sets out how the “UK’s tax system isn’t fit for purpose and specialists across the board agree on the need for reform”.

The pamphlet brings together diverse voices from across the Labour Party, including Patrick Diamond, the Policy Network vice-chair who worked in the Number 10 policy unit under Blair, and Richard Murphy, the tax specialist whose work has provided the foundation for much of Jeremy Corbyn’s economic policy.

Editor Daisy-Rose Srblin argues that “more needs to be done to connect the payment of taxes to the funding of strong, popular services”. She added:

“George Osborne has prioritised tax breaks for the wealthiest over support for families with children, the working poor and those reliant on welfare, and his ‘tax lock’ effectively puts 60 per cent of all taxation revenue out of reach for the duration of the new parliament. The left must counter this with clear plans for a system that treats the poorest more fairly, and these essays set out practical proposals for doing just that.”

Last summer, Fabian general secretary Andrew Harrop argued on LabourList against raising National Insurance to put extra funding into the NHS. In an essay for the new booklet, he contends that National Insurance contributions should be ringfenced and linked to funding for pensions, in a similar fashion to Gordon Brown’s famous NI rise which was used for health service spending.

Releasing the publication, Harrop said:

“Last month’s budget exemplified everything that is wrong with how the UK does tax policy. It was incremental, short-termist and so lacking in transparency that the chancellor refused even to admit that he was putting up taxes.

The British left should champion a fresh alternative, based on clear principles and open decision-making. This is the only way to arrive at consistent answers to the big questions on tax, including whether to devolve tax raising powers, make more use of earmarked contributions or shift the balance of taxation from earnings to wealth.  

If Labour is serious about rebuilding economic credibility, it should start a grown-up conversation about ‘how’ to tax, not ‘how much’.”